[2007] EWCA Civ 1382

Liability as a constructive trustee based on “knowing receipt” falls within the scope of the Civil Liability (Contribution) Act 1978. A party liable for “knowing receipt” is able to bring contribution proceedings against others liable for the damage to the original claimant.

In this case City Index was sued by Charter plc as a constructive trustee in respect of £9 million in company monies improperly paid to City Index by a Charter employee to support his spread betting addiction. Charter brought proceedings against City Index alleging that they had received the funds with knowledge of breach of trust or fiduciary duty by their employee and that it was unconscionable of City Index to use them to finance his spread betting. City Index settled the claim for £5.5 million and sought a contribution towards this liability from the directors and auditors of Charter on the basis that their breaches of duty had caused the unauthorised transfers to continue undetected, causing or contributing to Charter’s losses. The directors sought and obtained an order striking out the contribution claims, on the basis that, even if City Index’s liability was within the scope of the Civil Liability (Contribution) Act 1978, there was no reasonable prospect of contribution being ordered. The Court of Appeal reinstated the claims.